Coronavirus COVID-19 and Bankruptcy
In these uncertain times, financial problems are the last thing we need. It’s especially frustrating if we are in the process of completing a bankruptcy, but the lawyers’ offices, courts, and other legal services are all closed down. Is your bankruptcy going to move forward during a shutdown? Will you have to start over?
Here we are going to answer some of your important questions about moving forward with bankruptcy or filing for bankruptcy during the COVID-19 pandemic.
Bankruptcy in Process
It’s already a tough decision to decide to file bankruptcy. The process is lengthy and involves a lot of in person meetings and court hearings. Once the governments (federal and state) put stay at home orders in place, courts and other legal offices closed down to avoid spreading the virus. However, there are still ways the system is finding to conduct meetings and move your bankruptcy forward.
Any filing deadlines or deadlines for scheduling meetings must still be abided by. While the courts may be closed to the public, the employees are still working – either remotely or at safe social distancing intervals.
You should review your designated court’s website for updates on hearings, deadlines for filings, and other information regarding your bankruptcy. You don’t want to have your case dismissed for missing a deadline – then you would have to start over.
Most hearings for all court business have been switched to telephonic hearings. These hearings are organized just like face to face hearings. When the judge calls the case, anyone who is present in the courtroom will walk to the podium to identify themselves. Anyone participating telephonically (by phone) will then announce their presence. The judge sits on the bench and everyone in the courtroom is able to hear what is being said by the person on the phone.
Some of the courts will automatically hold telephonic hearings given the current status of the COVID-19 pandemic. If you receive notice that you are scheduled for an in-person hearing but don’t want to take the risk, you can request a telephonic hearing. This may postpone your hearing date, but the court is obliged to offer you this option. There are certain rules to follow if you are participating in a telephonic hearing:
Call at the appointed time. Unless you are instructed otherwise by court staff, call in at least 10 minutes before the time set for the hearing. That way, if there are technical difficulties, there is time to fix them before the hearing.
Mute your phone until it’s your turn to talk. Everyone in the courtroom can hear what you are saying, and any background noise. Leave your phone on mute until you are addressed by the court. You do not want any background noise distracting the judge or attorneys.
Make sure you have a good phone connection. If you have access, call from a landline. If you only have a cellphone, make sure you are in a place with solid reception and don’t move around during the hearing. If your call is dropped because of bad service, you could miss all or part of the hearing.
Remember, it’s still a court hearing. You may be calling in, but this is still a court hearing before a federal judge. Have any and all documents that you may need in front of you during the call.
341 Meeting of Creditors
If you had a scheduled meeting of creditors prior to the stay at home orders, it could be rescheduled. Contact your attorney or bankruptcy trustee to find out if the original date remains set, has been changed to a telephonic hearing, or if they are moving meetings back due to the stay at home orders.
This is not a hearing you can skip. Most 341 meetings have been changed to telephonic meetings. The Office of the United States Trustee handles the 341 meetings. “At the moment, all in-person 341 meetings scheduled through May 10, 2020, have been changed to take place telephonically or through other alternative means that do not require an in-person meeting.”
During the COVID-19 outbreak, operational rules and guideline modifications to courthouse protocols, clerk office hours, service of process requirements, and filing deadlines vary by district, so check your court’s website for changes. Make sure you check with your attorney and trustee to ensure you have the correct date for your hearing as well as the correct phone number for calling in.
It’s critical that you are informed on all the changes taking place during this pandemic. It is your responsibility to contact the court, the trustee, and your attorney to verify all hearing times and dates. Keep your paperwork updated and in an easy to find spot so you are ready the day of your telephonic hearing. These are also important things to remember if you are preparing to file and don’t want to wait out the virus.
Ready to File
When you are ready to file for bankruptcy, regardless of the current state of the virus, there are still steps that must be taken:
- Choose between Chapter 7 and Chapter 13 (the most common consumer bankruptcy plans)
- Secure an attorney
- Prepare your financial documents
- Fill out the filing paperwork
- Sign up for a certified Credit Counseling course
Chapter 7 is a liquidation bankruptcy that wipes out most of your debts like credit cards and medical bills. With Chapter 7, there is no need to participate in a repayment plan. Chapter 7 bankruptcy is for those with enormous amounts of debt but very little income or property.
When you file for Chapter 7, you receive an automatic stay to stop most creditors from practicing collection efforts. You will be assigned a bankruptcy trustee to manage your bankruptcy. The Chapter 7 trustee’s job is to review all your documents and determine what property you own that he or she can sell to pay back your creditors. Certain assets are considered exempt in a bankruptcy, so the trustee can only sell nonexempt assets. If you have no nonexempt assets, your creditors get nothing.
Chapter 13 is a reorganization bankruptcy for debtors with regular income who make enough income to pay at least a small portion of their debts through a repayment plan. Many debtors select Chapter 13 bankruptcy because it offers benefits not available in Chapter 7 (you can catch up on missed mortgage payments for example). In Chapter 13 bankruptcy, unlike Chapter 7, you get to keep all of your property. In exchange, you participate in a repayment plan designed to repay all or part of your debts.
Attorney vs Pro Se (self-representation)
Many people choosing to file will decide to try and handle everything themselves to save the cost of hiring an attorney. While that may save you money, it can also cause more problems than it is worth.
Oftentimes, problems arise even before the you file for bankruptcy.
Not needing to file. Some people file for bankruptcy because they hope it will help them wipe out debts. The truth is that bankruptcy is not that simple. There is a chance that taking credit counseling courses can help you get out of debt without filing bankruptcy.
Filing the wrong chapter type. For most consumers, the best choices are filing Chapter 7 or filing Chapter 13. Each type has its own benefits that solve specific problems. And most consumers don’t know that personal property is treated very differently in Chapter 7 versus Chapter 13.
To prepare for filing for bankruptcy, you need to collect a significant amount of paperwork:
- Paycheck stubs for several months
- Taxes for at least the past two years
- Statements from all your creditors (don’t forget mortgages and car loans)
- Student loan paperwork (if you have any loans – though they cannot be included in a bankruptcy)
- Bank statements (usually for several months)
- Statements regarding any additional income (freelance or independent contractor work)
- List of regular expenses
Having your paperwork in order and ready prior to your first attorney meeting is essential. You have to pay an attorney every time you visit him or her, so if you forget even one piece of paperwork, you will have to pay for another hour of your attorney’s time to have that document reviewed.
Filing the Paperwork
You can find official bankruptcy forms on the website of the United States Courts at www.uscourts.gov/forms/bankruptcy-forms. There, you can print out blank copies of the forms. You can choose to fill these out on your own or fill them out with your attorney. If you are uncertain of the process or the forms seem complicated, it is best to fill them out when your attorney is available to answer questions you might have.
Depending on where you live, your local bankruptcy court may require you to file additional forms for its own purposes. Local bankruptcy courts may also have special requirements or rules for filing a bankruptcy petition. These forms and any additional requirements are available from bankruptcy court clerks or local bankruptcy attorneys.
Credit Counseling Courses
Both Chapter 7 and Chapter 13 require you to complete a credit counseling course. There are specific courses certified by the courts that are acceptable. Only the counselors and educators that appear on the U.S. Trustee Program’s lists can provide the required counseling and debtor education.
Pre-bankruptcy credit counseling (prior to filing) and pre-discharge debtor education (prior to your bankruptcy being discharged at the end of the process) cannot be done simultaneously. Credit counseling is before filing for bankruptcy; debtor education is when you are near the end of the process.
“You must file a certificate of credit counseling completion when you file for bankruptcy, and evidence of completion of debtor education after you file for bankruptcy — but before your debts are discharged.”
A pre-bankruptcy counseling session will include an evaluation of your financial condition, a conversation about the substitutes for bankruptcy, and creating a personal budget plan. Most counseling sessions take about an hour to an hour and a half, and can happen in person, on the phone, or online. If you cannot afford the fees for the course, the counseling organization must provide the counseling for free. Make sure to request a fee waiver from the counseling organization prior to the session.
A debtor education course should include instruction on creating a workable budget, how to manage money, and using credit sensibly. Debtor education can also happen in person, on the phone, or online. The education session is usually longer than the pre-filing counseling — about two hours. Just like pre-filing counseling, if you can’t afford the session fee, ask for a waiver before starting the program.
After completing each session, the provide must give you a certificate that you will file with the court to prove you have completed financial education both before and after the bankruptcy.
Considering Filing due to COVID-19
When President Trump signed the CARES Act in March, there were temporary changes made to the US Bankruptcy Code. Among these are certain temporary amendments to Title 11 of the United States Code (the “Bankruptcy Code”). Section 1113 of Title I of the CARES Act – the Keeping American Workers Paid and Employed Act – contains amendments to the Bankruptcy Code affecting individuals.
For individual debtors, the CARES Act “temporarily amends certain definitions in Chapter 7 and Chapter 13 bankruptcy filings to exclude COVID-19-related payments from the federal government from being treated as part of a debtor’s income. For example, the amendments exclude COVID-19 related payments both from the definition of “current monthly income” for purposes of determining a debtor’s eligibility for Chapter 7 or Chapter 13 bankruptcy and from the calculation of “disposable income” for purposes of Chapter 13 plan confirmation.”
Chapter 13 debtors are also now permitted to seek modifications of their confirmed Chapter 13 plans if “the debtor is experiencing or has experienced a material financial hardship due, directly or indirectly, to the coronavirus disease 2019 (COVID-19) pandemic.” The debtor would have to seek a hearing to exercise their right to this modification.
Because of these modifications to the bankruptcy code, debtors who are already in the process of bankruptcy, as well as those needing to file, will have some protections that didn’t exist prior to the CARES Act.
The COVID-19 pandemic has caused financial hardship many people have never seen in their lifetimes. Recognizing this, the federal government has taken steps to maintain the bankruptcy process for those who have filed and protected the income from the CARES Act so filers won’t lose the aid coming their way.
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